1997 (10) TMI 90 - AT - Income Tax

Summary

Issues:
1. Validity of re-assessment order under section 143(3), read with section 147.
2. Lack of proper reasons recorded for issuing notice under section 148.
3. Assessment made in the hands of a dissolved firm.
4. Merits of the case regarding compensation assessment.

Analysis:
1. The appeal was filed against the re-assessment order under sections 143(3) and 147. The ITAT previously sent the matter back to the CIT (Appeals) for a proper conclusion on the validity of the assessment proceeding. The Assessing Officer did not provide reasons for issuing the notice under section 148, which was deemed necessary. The absence of proper reasons for initiating proceedings under section 147 rendered the assessment proceeding invalid, as per various legal precedents cited by the counsel for the assessee.

2. The assessment was challenged on the grounds that it was made in the hands of a dissolved firm. The counsel relied on legal judgments to support the argument that assessment must be made when the assessee is in existence. The Karnataka High Court's decision in a similar case emphasized that income cannot be assessed in the hands of a dissolved firm for a period when it was not in existence. The Supreme Court's ruling in a related matter further clarified that income earned after the dissolution of a firm cannot be assessed in the firm's name. Consequently, the assessment made in the name of the dissolved firm was deemed invalid.

3. The merits of the case regarding the assessment of compensation were discussed. The counsel referred to conflicting judgments from the Karnataka High Court regarding the assessability of the entire compensation amount versus only the installment due in the relevant previous year. However, since the assessment was already deemed invalid from two different angles, the ITAT did not delve into the merits of the case. The assessment order was ultimately canceled, overturning the decision of the CIT (Appeals).

4. In conclusion, the ITAT partially allowed the appeal filed by the assessee, primarily due to the invalidity of the assessment proceeding arising from the lack of proper reasons recorded for issuing the notice under section 148 and the assessment made in the name of a dissolved firm for a period when it was not in existence. The assessment order was reversed, and the issue regarding the assessment of compensation was left open as it became irrelevant in light of the decision to cancel the assessment.